11/05/22

EUROPE: EU Commission Favors Ban on Large-Scale Stablecoins, Document Shows.

As published on coindesk.com, Wednesday 11 May, 2022.

The European Commission is considering hard curbs on the ability of stablecoins to become widely used in place of fiat currency, according to a document seen by CoinDesk.

Officials appear to be siding with the views of European Union finance ministers, who have proposed tough measures aimed at stopping the likes of Facebook's now-abandoned libra stablecoin from replacing the euro, and require issuance to halt if transactions top 1 million per day. Two individuals familiar with discussions confirmed the details.

The document is labeled as a “non-paper,” meaning it does not reflect the commission’s formal position, and is one of a number documents being produced to influence discussions on topics such as whether crypto firms should be able to register from tax havens.

Lawmakers and governments are attempting to finalize the landmark crypto law known as the Markets in Crypto Assets Regulation (MiCA), with late-stage talks behind closed doors that are brokered by the commission.

National ministers, who meet in a body known as the Council of the EU, want to stop rivals to fiat from operating if they become too popular. Under their plans, regulators could order the issuers of any stablecoin exceeding 200 million euros (US$211 million) and 1 million transactions daily to cease issuances until these figures come back below the threshold.

The European Parliament favors a softer approach that would see successful stablecoins reclassified and subject to oversight by the European Banking Authority.

“The Commission services prefer the Council text that limits the issuance of ARTs [asset referenced tokens],” the document said, warning that the parliament’s approach of forcing issuers to repay customers what they originally paid for the token would lead to financial engineering that could endanger stability.

“The thresholds for monitoring and limiting ARTs widely used as a means of payment could be further discussed at political level,” the document said. The Commission does favor having extra measures triggered by specific numerical limits, rather than leaving it to regulators’ discretion.

MiCA introduces measures to ensure crypto assets are well governed, honestly offered to investors and have decent reserves, particularly when they reach significant scale. The extra proposals would apply to widely used stablecoins that are tied to a basket of assets, rather than those fixed to an individual fiat currency such as the euro.

The issue could determine the future of EU markets, which have, unlike the U.S., not seen the emergence of major stablecoins that could aid payments and decentralized finance – though the news that UST, which is supposed to maintain a $1 price, lost its peg and fell to under 35 cents Tuesday, may now focus minds on the importance of sound regulation.

European politicians such as French Finance Minister Bruno Le Maire had previously threatened to block libra, which was subsequently re-named diem and then abandoned by Facebook, which later renamed itself Meta (FB).

The European Commission told CoinDesk it declined to comment on a leaked document.